Subtitles and Transcript

Niall Ferguson

0:11
Let's talk about billions.Let's talk aboutpast and future billions.We knowthat about 106 billion peoplehave ever lived.And we know that most of them are dead.And we also knowthat most of them live or lived in Asia.And we also knowthat most of them were or are very poor --did not live for very long.Let's talk about billions.Let's talk aboutthe 195,000 billion dollars of wealthin the world today.We know that most of that wealthwas made after the year 1800.And we know that most of itis currently ownedby people we might call Westerners:Europeans, North Americans, Australasians.19 percent of the world's population today,Westerners own two-thirds of its wealth.

1:21
Economic historianscall this "The Great Divergence."And this slide hereis the best simplificationof the Great Divergence storyI can offer you.It's basically two ratiosof per capita GDP,per capita gross domestic product,so average income.One, the red line,is the ratio of British to Indianper capita income.And the blue lineis the ratio of American to Chinese.And this chart goes back to 1500.And you can see herethat there's an exponential Great Divergence.They start off pretty close together.In fact, in 1500,the average Chinese was richer than the average North American.When you get to the 1970s,which is where this chart ends,the average Briton is more than 10 times richerthan the average Indian.And that's allowingfor differences in the cost of living.It's based on purchasing power parity.The average Americanis nearly 20 times richerthan the average Chineseby the 1970s.

2:33
So why?This wasn't just an economic story.If you take the 10 countriesthat went on to becomethe Western empires,in 1500 they were really quite tiny --five percent of the world's land surface,16 percent of its population,maybe 20 percent of its income.By 1913,these 10 countries, plus the United States,controlled vast global empires --58 percent of the world's territory,about the same percentage of its population,and a really huge, nearly three-quarters shareof global economic output.And notice, most of that went to the motherland,to the imperial metropoles,not to their colonial possessions.

3:24
Now you can't just blame this on imperialism --though many people have tried to do so --for two reasons.One, empire was the least original thingthat the West did after 1500.Everybody did empire.They beat preexisting Oriental empireslike the Mughals and the Ottomans.So it really doesn't look like empire is a great explanationfor the Great Divergence.In any case, as you may remember,the Great Divergence reaches its zenith in the 1970s,some considerable time after decolonization.This is not a new question.

4:02
Samuel Johnson,the great lexicographer,[posed] it through his character Rasselasin his novel "Rasselas, Prince of Abissinia,"published in 1759."By what means are the Europeans thus powerful;or why, since they can so easily visit Asia and Africafor trade or conquest,cannot the Asiaticks and Africansinvade their coasts,plant colonies in their ports,and give laws to their natural princes?The same wind that carries them backwould bring us thither?"

4:38
That's a great question.And you know what,it was also being asked at roughly the same timeby the Resterners -- by the people in the rest of the world --like Ibrahim Muteferrika,an Ottoman official,the man who introduced printing, very belatedly,to the Ottoman Empire --who said in a book published in 1731,"Why do Christian nations which were so weak in the pastcompared with Muslim nationsbegin to dominate so many lands in modern timesand even defeat the once victorious Ottoman armies?"Unlike Rasselas,Muteferrika had an answer to that question,which was correct.He said it was "because they have laws and rulesinvented by reason."It's not geography.

5:30
You may think we can explain the Great Divergencein terms of geography.We know that's wrong,because we conducted two great natural experiments in the 20th centuryto see if geography mattered more than institutions.We took all the Germans,we divided them roughly in two,and we gave the ones in the East communism,and you see the result.Within an incredibly short period of time,people living in the German Democratic Republicproduced Trabants, the Trabbi,one of the world's worst ever cars,while people in the West produced the Mercedes Benz.If you still don't believe me,we conducted the experiment also in the Korean Peninsula.And we decided we'd take Koreansin roughly the same geographical placewith, notice, the same basic traditional culture,and we divided them in two, and we gave the Northerners communism.And the result is an even bigger divergencein a very short space of timethan happened in Germany.Not a big divergence in terms of uniform design for border guards admittedly,but in almost every other respect,it's a huge divergence.Which leads me to thinkthat neither geography nor national character,popular explanations for this kind of thing,are really significant.

6:43
It's the ideas.It's the institutions.This must be truebecause a Scotsman said it.And I think I'm the only Scotsman here at the Edinburgh TED.So let me just explain to youthat the smartest man ever was a Scotsman.He was Adam Smith --not Billy Connolly, not Sean Connery --though he is very smart indeed.(Laughter)Smith -- and I want you to goand bow down before his statue in the Royal Mile;it's a wonderful statue --Smith, in the "Wealth of Nations"published in 1776 --that's the most important thing that happened that year ...(Laughter)You bet.There was a little local difficulty in some of our minor colonies, but ...

7:33
(Laughter)

7:35
"China seems to have been long stationary,and probably long ago acquired that full complement of richeswhich is consistent with the nature of its laws and institutions.But this complement may be much inferiorto what, with other laws and institutions,the nature of its soil, climate, and situationmight admit of."That is so right and so cool.And he said it such a long time ago.

7:58
But you know, this is a TED audience,and if I keep talking about institutions,you're going to turn off.So I'm going to translate this into language that you can understand.Let's call them the killer apps.I want to explain to you that there were six killer appsthat set the West apart from the rest.And they're kind of like the apps on your phone,in the sense that they look quite simple.They're just icons; you click on them.But behind the icon, there's complex code.It's the same with institutions.There are sixwhich I think explain the Great Divergence.One, competition.Two, the scientific revolution.Three, property rights.Four, modern medicine.Five, the consumer society.And six, the work ethic.You can play a game and try and think of one I've missed at,or try and boil it down to just four,but you'll lose.

8:54
(Laughter)

8:56
Let me very briefly tell you what I mean by this,synthesizing the work of many economic historiansin the process.Competition means,not only were there a hundred different political units in Europe in 1500,but within each of these units,there was competition between corporations as well as sovereigns.The ancestor of the modern corporation, the City of London Corporation,existed in the 12th century.Nothing like this existed in China,where there was one monolithic statecovering a fifth of humanity,and anyone with any ambitionhad to pass one standardized examination,which took three days and was very difficultand involved memorizing vast numbers of charactersand very complex Confucian essay writing.

9:38
The scientific revolution was differentfrom the science that had been achieved in the Oriental worldin a number of crucial ways,the most important beingthat, through the experimental method,it gave men control over nature in a way that had not been possible before.Example: Benjamin Robins's extraordinary applicationof Newtonian physics to ballistics.Once you do that,your artillery becomes accurate.Think of what that means.That really was a killer application.(Laughter)Meanwhile, there's no scientific revolution anywhere else.The Ottoman Empire's not that far from Europe,but there's no scientific revolution there.In fact, they demolish Taqi al-Din's observatory,because it's considered blasphemousto inquire into the mind of God.

10:27
Property rights: It's not the democracy, folks;it's having the rule of law based on private property rights.That's what makes the differencebetween North America and South America.You could turn up in North Americahaving signed a deed of indenturesaying, "I'll work for nothing for five years.You just have to feed me."But at the end of it, you've got a hundred acres of land.That's the land granton the bottom half of the slide.That's not possible in Latin Americawhere land is held ontoby a tiny elite descended from the conquistadors.And you can see here the huge divergencethat happens in property ownership between North and South.Most people in rural North Americaowned some land by 1900.Hardly anyone in South America did.That's another killer app.

11:14
Modern medicine in the late 19th centurybegan to make major breakthroughsagainst the infectious diseases that killed a lot of people.And this was another killer app --the very opposite of a killer,because it doubled, and then more than doubled, human life expectancy.It even did thatin the European empires.Even in places like Senegal,beginning in the early 20th century,there were major breakthroughs in public health,and life expectancy began to rise.It doesn't rise any fasterafter these countries become independent.The empires weren't all bad.

11:45
The consumer society is what you needfor the Industrial Revolution to have a point.You need people to want to wear tons of clothes.You've all bought an article of clothing in the last month;I guarantee it.That's the consumer society,and it propels economic growthmore than even technological change itself.Japan was the first non-Western societyto embrace it.The alternative,which was proposed by Mahatma Gandhi,was to institutionalize and make poverty permanent.Very few Indians todaywish that India had gone downMahatma Gandhi's road.

12:21
Finally, the work ethic.Max Weber thought that was peculiarly Protestant.He was wrong.Any culture can get the work ethicif the institutions are thereto create the incentive to work.We know thisbecause today the work ethicis no longer a Protestant, Western phenomenon.In fact, the West has lost its work ethic.Today, the average Koreanworks a thousand hours more a yearthan the average German --a thousand.And this is partof a really extraordinary phenomenon,and that is the end of the Great Divergence.

13:03
Who's got the work ethic now?Take a look at mathematical attainmentby 15 year-olds.At the top of the international league tableaccording to the latest PISA study,is the Shanghai district of China.The gap between Shanghaiand the United Kingdom and the United Statesis as big as the gap between the U.K. and the U.S.and Albania and Tunisia.You probably assumethat because the iPhone was designed in Californiabut assembled in Chinathat the West still leads in terms of technological innovation.You're wrong.In terms of patents,there's no question that the East is ahead.Not only has Japan been ahead for some time,South Korea has gone into third place,and China is just about to overtake Germany.Why?Because the killer apps can be downloaded.It's open source.Any society can adopt these institutions,and when they do,they achieve what the West achieved after 1500 --only faster.

14:08
This is the Great Reconvergence,and it's the biggest story of your lifetime.Because it's on your watch that this is happening.It's our generationthat is witnessing the end of Western predominance.The average American used to be more than 20 times richerthan the average Chinese.Now it's just five times,and soon it will be 2.5 times.

14:29
So I want to end with three questionsfor the future billions,just ahead of 2016,when the United States will lose its placeas number one economy to China.The first is, can you delete these apps,and are we in the process of doing soin the Western world?The second question is,does the sequencing of the download matter?And could Africa get that sequencing wrong?One obvious implication of modern economic historyis that it's quite hard to transition to democracybefore you've establishedsecure private property rights.Warning: that may not work.And third, can China do withoutkiller app number three?That's the one that John Locke systematizedwhen he said that freedom was rooted in private property rightsand the protection of law.That's the basisfor the Western modelof representative government.Now this picture shows the demolitionof the Chinese artist Ai Weiwei's studioin Shanghai earlier this year.He's now free again,having been detained, as you know, for some time.But I don't think his studio has been rebuilt.

15:51
Winston Churchill once defined civilizationin a lecture he gave in the fateful year of 1938.And I think these words really nail it:"It means a society based upon the opinion of civilians.It means that violence, the rule of warriors and despotic chiefs,the conditions of camps and warfare, of riot and tyranny,give place to parliaments where laws are made,and independent courts of justicein which over long periods those laws are maintained.That is civilization --and in its soil grow continuallyfreedom, comfort and culture,"what all TEDsters care about most."When civilization reigns in any country,a wider and less harassed lifeis afforded to the masses of the people."That's so true.

16:44
I don't think the decline of Western civilizationis inevitable,because I don't think history operatesin this kind of life-cycle model,beautifully illustrated by Thomas Cole's"Course of Empire" paintings.That's not the way history works.That's not the way the West rose,and I don't think it's the way the West will fall.The West may collapse very suddenly.Complex civilizations do that,because they operate, most of the time,on the edge of chaos.That's one of the most profound insightsto come out of the historical study of complex institutionslike civilizations.No, we may hang on,despite the huge burdens of debt that we've accumulated,despite the evidence that we've lost our work ethicand other parts of our historical mojo.But one thing is for sure,the Great Divergenceis over, folks.

17:44
Thanks very much.

17:46
(Applause)

18:11
Bruno Giussani: Niall,I am just curiousabout your take on the other region of the world that's booming,which is Latin America.What's your view on that?

18:24
Niall Ferguson: Well I really am not just talkingabout the rise of the East;I'm talking about the rise of the Rest,and that includes South America.I once asked one of my colleagues at Harvard,"Hey, is South America part of the West?"He was an expert in Latin American history.He said, "I don't know; I'll have to think about that."That tells you something really important.I think if you look at what is happening in Brazil in particular,but also Chile,which was in many ways the one that led the wayin transforming the institutions of economic life,there's a very bright future indeed.So my story really isas much about that convergence in the Americasas it's a convergence story in Eurasia.

19:02
BG: And there is this impressionthat North America and Europeare not really paying attentionto these trends.Mostly they're worried about each other.The Americans think that the European model is going to crumble tomorrow.The Europeans think that the American budget is going to explode tomorrow.And that's all we seem to be caring about recently.

19:22
NF: I think the fiscal crisisthat we see in the developed World right now -- both sides of the Atlantic --is essentially the same thingtaking different formsin terms of political culture.And it's a crisis that has its structural facet --it's partly to do with demographics.But it's also, of course, to do with the massive crisisthat followed excessive leverage,excessive borrowing in the private sector.That crisis,which has been the focus of so much attention, including by me,I think is an epiphenomenon.The financial crisis is really a relatively small historic phenomenon,which has just acceleratedthis huge shift,which ends half a millennium of Western ascendancy.I think that's its real importance.